Daily Management Review

Weak Factory Data Dents Hopes For Global Growth


Weak Factory Data Dents Hopes For Global Growth
Factory activity and manufacturing in the top five economic superpowers in the world in March had cooled down significantly impacting the prospect of global economic growth.
There was contraction at the fastest pace in the last six years in the factory activity in the 19-country euro zone market. Similarly, there was shrinkage in manufacturing in Japan at a pace that was the fastest in the last almost three year because of the economic slowdown in China. On the other hand, one of the manufacturing measurements in the United States was the weakest since June 2017 and there was a slashing of estimate for economic growth made in early 2019 by forecasters at the Federal Reserve Bank of Philadelphia.
As it is, the world economy and businesses have been kept at tenterhooks because of the ongoing trade war between the US and China – even though its flames seemed to have died down somewhat because of positive indications of outcome from the ongoing negotiations between the two parties. 
While the US-China trade war apparently is throwing out sings of ending, the US has taken up another trade fight, this time with the European Union over issues related to imposition of additional import tariffs on Europe-made cars and auto parts and negotiations between the two parties is still undergoing. This has also dented the hopes of global economic growth.
Adding further dent in the growth prospect of the global economy, the 10-year bond yields in Germany dropped below zero after having dropped earlier on Thursday following signals of no more rate hikes in the US in the current year by the U.S. Federal Reserve.
Accordingly, there was a plunge to a 14-month low for the U.S. 10-year Treasury note yield in New York because of weighing on inflation expectations due to growth worries.
“While such an inversion has traditionally been an indicator of a recession, this time around it may be less about the prospects for the U.S. economy and more about spillovers from what is happening in Europe and the bond market there, together with the effects of the Fed’s surprising decision to be very dovish again with its unconventional policy tools,” said Mohamed El-Erian, chief economic adviser at Allianz in Newport Beach, California.
There was also a drop in U.S. and European stocks and the euro on Friday with a 1.6 fall in the benchmark S&P 500 which set it on a course for its largest drop in almost three months.
According to experts, these falls have been primarily driven by ongoing global trade tensions.
“No other factor shapes the euro zone business cycle more than the ups and downs of global trade,” economists at Berenberg, a bank, said.
According to the Berenberg economists, the risk of trade flows possibly turning even more negative in the short term were raised by the fall in the manufacturing purchasing managers index of the euro zone to its lowest in 71 months in March from 49.4 in February.
“We highlight downside risks mainly stemming from the external side – e.g. trade tensions, a Chinese-led global slowdown,” Barclays economists Radu-Gabriel Cristea and Francois Cabau said about the euro zone.
“The protracted weakness in manufacturing remains a lingering risk, and overall growth concerns are likely to intensify should the industrial backdrop further deteriorate. At the same time, Italy and Brexit woes remain non-negligible, the uncertainty a further drag on sentiment.”
According to Joe Hayes, an economist at IHS Markit, in March, the business confidence was kept well below its historical average because of concerns over a slowdown in the Chinese economy and the extended global trade spats.